Peugeot to expand in China with €250m investment in second plant

PSA Peugeot Citroën, Europe's No 2 car maker, is to build a second assembly plant in China to take advantage of the booming demand for cars in the world's fastest-growing economy.

The plant will have a capacity of at least 100,000 vehicles a year and is expected to cost about €200m (£140m) and €250m to develop for Peugeot and its Chinese joint-venture partner Dongfeng Motor Group.

The companies have not yet decided on a location for the plant but it is likely to be close to their existing car factory in Wuhan in Hubei province.

The new facility will enable the company to extend its production in China to include top-of-the-range models such as the Peugeot 405, Citroën C5 and Citroën C6. The new plant, is expected to open by 2009.

Together with its existing facilities, which produce a range of small- and medium-sized Peugeot and Citroën models, this will enable the French company to produce a dozen different cars in China.

The go-ahead for the plant is part of an ambitious drive by PSA to close the gap with the market leaders in China - Volkswagen, General Motors and Hyundai - by doubling its market share to 8 per cent by 2010. That could see it producing 500,000 cars in China by the end of the decade when domestic production and sales are forecast to reach at least 6 million.

The group also announced it is to increase its imports significantly into the Chinese market through the newly created and wholly owned Peugeot Citroën China Automotive.

The company plans to bring in several thousand cars - mainly the 607 and C5 - from Europe this year and then increase imports to tens of thousands a year after that.

About 80 per cent of the cars built in China are produced by joint ventures between local manufacturers and Western or Japanese car makers. Peugeot's partner, Dongfeng, also has joint ventures with Nissan, Honda, Toyota and Kia, and accounts for about 15 per cent of the total market.

PSA and Dongfeng have invested about €1.3bn in China since their joint venture was set up in 1992 and began producing cars four years later. Two years ago, they announced plans to double production at Wuhan to 300,000 cars a year at a cost of €180m.

The two companies also have an engine plant at Xiang Fan, 350 kilometres north of Wuhan in Hubei province.

Sales from the joint-venture company are forecast to increase from 140,000 last year to about 210,000 this year with the introduction of the domestically produced Peugeot 206 in addition to the existing 307 model. Over the next three years, PSA plans to launchnine new models in China, including three this year, one of which will be a compact Citroën and another a Chinese-styled version of the Citroen C4 saloon. Details of where the car plant is to be built, along with its capacity, will be announced in July.

A board meeting of Dongfeng Peugeot Citroën Automotive was held on Saturday to approve the investment. Jean-Martin Folz, the chief executive of PSA, said there was no intention of exporting cars from China to Europe but he held out the prospect of shipping cars from Wuhan to other countries in south-east Asia.